I’m a staff writer covering all things Wall Street and Investing. I have a love hate relationship with the world of finance. I am fascinated by the industry’s power and influence around the globe, and the ingenuity of the people it employs. Not so much a fan of the lack of accountability when the system fails—which it often does: I'm always on the hunt for people and companies to profile.

Don't Hold Your Breath, Big Banks Will Not Be Broken Up

Big bank CEOs may not have the most objective of voices but they are loud and powerful, and these days they are using them to defend their universal bank model more openly.

The global bank model utilized by the banks likes JPMorgan Chase, Citigroup, Bank of America, Goldman Sachs and Morgan Stanley has been under attack to say the least. Calls to revive Glass-Steagall, which would end securities and investment banking activities by commercial banks, have never been stronger since the law was repealed in 1999.

Of course, the calls to shrink banks and separate basic commercial banking activity from everything else are the result of the 2008 financial crisis when government bailouts were made to banks that were too big to fail.

Since then lawmakers and regulators have hammered down on what banks can and can’t do through a massive financial reform legislation, The Dodd–Frank Wall Street Reform and Consumer Protection Act. Though most of the rules have yet to be written banks have been (quietly in some cases) pushing to ease the end result. But more recently their voices are getting louder in defense of their financial supermarket model that nearly toppled over in 2008 –and likely would have had it not been for a $700 billion in taxpayer-funded bailout.

The latest defense of the universal bank model comes from Morgan Stanley CEO James Gorman. As chairman and CEO of one of the largest global institutions Gorman doesn’t want to see his bank get much smaller. In an interview with Bloomberg television Gorman says everyone just needs to calm down about the big bank breakup stuff.

“This is a knee-jerk discussion that’s been going on. We need to just calm down, let this play out with the new regulation, the new capital rules, and at that point then figure out which businesses to accelerate, and which businesses to slow down,” Gorman said in the interview.

Gorman isn’t alone the defense of big global banks. Bank of America’s CEO Brian Moynihan discussed the issue last month saying universal banking model is the “most important” model there is because it gives consumers access to global information, capital markets, investment advice and basic banking all in one place. “We can’t be competitive if we can’t provide all those services to our consumers,” he added.

It’s no surprise that these bank CEOs are doing what they can to alleviate any heavy pains from bank regulations but as for the lawmakers and regulators charged with “fixing” the system they need a better handle on what it is exactly they want the big bank world to look like.

Take the Volcker Rules for instance. What seems like a simple, no-brainer idea (banks with FDIC-backed deposits can not trade on their own behalf for their own profit) has turned into a complicated mess with banks arguing that they need to be able to do make those trades to protect themselves. The rule hasn’t been written yet.

If one rule is causing so much debate how exactly are the calls for a break-up of big banks going to go down? They’re not. Why? Because no one knows how and the only people who might have a clue are the banks themselves–good luck getting their help on this.

SNL financial analyst Nancy Bush wrote a piece about that very issue asking a very important but unanswered question: How exactly would we go about breaking up the banks? Here’s some of her commentary:

But here’s the significant question that would arise at that time — break them up into what, exactly? (Richard Fisher and his ilk never seem to address that question.) Would Jamie Dimon be able to simply split off his investment bank, call it J.P. Morgan & Co. and set the Chase retail franchise free to grow as a less-capital-intensive commercial bank? (Sounds simple enough, but somehow I think it would be a technological nightmare.)

How about Citigroup — what is actually left there to split up? Would it simply shed its domestic franchise, incorporate itself in Luxembourg and become a non-U.S. bank? (A la Deutsche Bank AG, which has basically de-banked itself to escape Dodd-Frank Act restrictions.) And while there have been recent calls for Bank of America to split off not only Merrill Lynch but also the remnants of Countrywide and MBNA, it would seem to me to be hard to operate a viable national deposit-gathering franchise without the ability to offer such important retail products as mortgages and credit cards.

As for Merrill Lynch — what would then happen to the wealth management business attached to that venerable Wall Street name? Is asset management really all that “risky” an endeavor?

So “break them up” may be a popular mantra for Occupy Wall Street and its academic apologists, but I have yet to see anybody — Krugman, Fisher, Volcker, Stiglitz, Ken Rogoff, etc. — make any serious effort to examine this issue objectively and write about how this Herculean task might realistically be accomplished, not to mention what the sudden dearth of large banks might do to the American economy. And what about Wells Fargo, which is among the top five banks and has doubled its deposit market share since the financial crisis but does not have significant capital markets exposure?

On the bright side, there is one regulation that does seem to be working in getting these banks to downsize a bit. Capital rules. Bank of America is a great example. It’s done 46 divestments since February 2010, according to SNL data. BofA will describe those sales as a way to exist non-core businesses but make no mistake it is also using it as a way to raise capital.

“It may be that in reality the Fed won’t have success in trying to bring back Glass-Steagall and instead of breaking them up the idea is to make them more manageable through the back door. And asset sales are one way to drive that,” Bush says.

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I don’t know how many of these calls to break up banks is the serious attempt to mitigate risks from people who are worried that the elimination of diseconomy of scale has not been complete. Many voices in that throng sound as though they are the distant echoes of Marxist redistribution of wealth: Still others sound like plain old success envy.

Some of it, yes, is a knee-jerk reaction: Many people haven’t stopped to consider that the size (or age) of the institutions had nothing to do with their improper management of risk.

Why do we give the banksters a choice? They’ve proven that they are incapable of behaving responsibly if behaving responsibly takes a red cent from the bottom line. Don’t break them up. Ignore them. Your local credit union does more to support your community and it’s small businesses than B of A or Chase ever will. And the local banks and cu’s keep the risks (loans) on their own books. Let the big 5 banks feed on each other until they collapse under the weight of the lawyer’s fees.